Who Stole the American Dream? (2 page)

As a country, we have declined from an era of middle-class prosperity and middle-class power from the 1940s to the 1970s to an era of vast fortunes and mass economic insecurity. We have fallen from being the envy of the world, with the most widely shared economic prosperity and the most affluent middle class of any place on earth, to
losing our title as “the land of opportunity.” It is now easier, in fact, to climb the economic and social ladder in several Western European countries than it is in the United States.

Globalization has hit us all, of course, but the way we have responded with our New Economy has put the American middle class in an ever-tightening financial squeeze, raising protests from both left and right.

“The
middle class is the key to greatness in this country,” right-wing radio commentator Rush Limbaugh told his audience of millions one sunny fall afternoon in October 2011. “We had the largest middle class in the world, and it’s under assault from practically every direction. Look at the destruction of home values. The family home was the largest asset most people in the middle class have, and it’s being destroyed, and it’s being destroyed after being talked up for generation after generation after generation. The American dream equals owning your own house.”

“It was the
middle class that made America great,” AFL-CIO president Rich Trumka said in a television appearance a few weeks earlier. “We were very, very competitive when the unions were at their heydays. We spread the wealth around to everybody so that the main driver of our economy [was] consumer spending, people [had] money in their pockets to spend.” Now, Trumka went on, the question “is whether we’ll restore the middle class, which is the heart and the soul of the American dream.”

When such normally clashing political voices as Limbaugh and Trumka sound a common theme, it is worth listening. They are highlighting a critical national problem.

In our political life, too, we have left behind one of the most expansive periods of American democracy, the populist era of the 1960s and 1970s, where much of the dynamism and energy that drove sweeping changes in our laws and policies arose from the belly of the nation. Since then, we have moved from a broad populism to a narrow plutocracy. Instead of a high-visibility, outside political power game of mass movements and public participation, we now have a
low-visibility, inside power game dominated by the lobbyists for the American financial and political elite.

In the middle-class democracy of the 1950s, ’60s, and ’70s, ordinary Americans felt confident of their political power and its impact. They believed that by engaging personally in civic activism, they could help set the nation’s agenda—and they succeeded. They forced action by Congress and the White House. Through grassroots power—the civil rights movement, the environmental movement, the peace movement, the consumer movement, the labor movement, and the women’s movement—citizen power won important political victories that altered the face of our society and enlarged the American Dream. Seeing their own impact on public policy, people felt connected to government instead of feeling powerless and alienated as they do today.

In the last three decades, except for the organized activism of the Tea Party and the inchoate protests of Occupy Wall Street, Americans at the grass roots have largely retreated from direct citizen action. Our idealism has given way to a sense of futility. That has prompted Ernie Cortes, one of America’s most effective grassroots organizers, to amend Lord Acton’s famous dictum that power corrupts. Cortes notes: “
Powerlessness also corrupts.”

Powerlessness breeds cynicism and passivism, especially between elections, which is the crucial time when policies are forged, the time when the organized money of special interests exerts commanding influence. As Senator John McCain, the conservative Republican presidential nominee in 2008, put it, the flow of money into lobbying and into election campaigns is “nothing less than
an elaborate influence-peddling scheme in which both parties conspire to stay in office by selling the country to the highest bidder.”

Political insiders have always had extra power—more at some times in our history, less at other times. Since the late 1970s, the insiders’ advantage has grown exponentially. Today, the New Power Game in Washington is dominated by well-financed professional lobbyists, many of them former members of Congress and government officials with an inside track, working for special interests like
Wall Street banks; the oil, defense, and pharmaceutical industries; and business trade associations.

Our once healthy clash of interests has become precariously one-sided. In the past decade,
business has employed thirty times as many Washington lobbyists as trade unions and sixteen times as many lobbyists as labor, consumer, and public interest lobbyists combined. Spending has been even more lopsided in favor of Corporate America.
From 1998 through 2010, business interests and trade groups spent $28.6 billion on lobbying compared with $492 million for labor, nearly a 60-to-1 business advantage.

Today,
no countervailing power matches the political clout of business. Our democracy has become starkly unequal.

This book sets out to describe how, over the past four decades, we came to this point—how we became two such polarized and dissimilar Americas, how the great economic and political divide affects the lives of individual Americans, and how we might, through changed policies and a revival of citizen action, restore our unity and reclaim the American Dream for average people.

In my first book,
The Russians
, I sought to give American readers an intimate human picture of what Russians were like beneath the veneer of Soviet communism and why they behaved the way they did. In
The Power Game: How Washington Works
, I went inside the American political system and the games politicians played in the era of Ronald Reagan and Jimmy Carter to describe how power really works in Washington and why some leaders succeed and others fail.

In this book, I provide a reporter’s CAT scan of the Two Americas today, examining the interplay of economics and politics to disclose how the shifts of power and of wealth have led to the unraveling of the American Dream for the middle class. I tell the story, too, of how we evolved into such an unequal democracy—how we lost the moderate
political middle and how today’s polarized politics reinforce economic inequality and a pervasive sense of economic insecurity.

This is a reporter’s book full of stories of Americans high and low. It portrays the impact of the New Economy and the New Power Game on the rich and the middle—on jobs, incomes, homes, retirement—and on people’s hopes and dreams. Among these people are many Americans I came to know reporting for
The New York Times
, for PBS investigative documentaries, and for this book—leaders like Bill Clinton, Newt Gingrich, and Martin Luther King, Jr.; CEOs like Al Dunlap, Bob Galvin, or Andy Grove; and middle-class people like jet airline mechanic Steve O’Neill, loan officer Bre Heller, computer plant technician Winson Crabb, contractor Eliseo Guardado, and small-business owner John Terboss.

Most still voice a plucky personal confidence. Yet their faith in the American Dream has been sorely shaken. Like others, they want to know what happened to them and to America—what changed the way our economy and our politics work.

The standard explanation offered by business leaders and political and economic conservatives is that these harsh realities of the New Economy are the unavoidable product of impersonal and irresistible market forces.

America, they point out, was an unchallenged economic colossus at the end of World War II. It was easier then for the United States to generate middle-class prosperity. But as Europe, Japan, and Russia recovered, America’s
share of world trade shrank from nearly 20 percent in 1950 to less than 10 percent in 1980. In the early 1970s, we began running trade deficits, and as Asia boomed, we imported much more than we sold abroad. As historian Charles Maier put it, the United States morphed from the “empire of production” into the “
empire of consumption.” Today, we benefit as consumers, but we
pay a heavy price in lost jobs, American jobs lost to foreign imports or because U.S. companies have moved them overseas.

Business leaders and free market economists tell us that this economic hemorrhaging is an unavoidable cost of progress. It is the price of the inexorable march of technology and free trade. But that seductive half-truth doesn’t fully square with the facts. It ignores the political and economic story that this book tells—the impact of public policy and corporate strategy on how we became Two Americas. It fails to explain why such an overwhelming share of the fruits of technological change and globalization went to a privileged few while the majority of ordinary Americans got left out.

Few would dispute that technological change and the digital age have shaken up the U.S. economy, forcing change, creating new winners and losers, and disrupting many industries and millions of lives. But if technological change and globalization were the primary causes of America’s problems today, then we would see the same yawning income inequalities and middle-class losses in other advanced countries. But we don’t.

Germany took a different fork in the road in the 1980s and it has fared far better than America in the global marketplace. While the United States piled up
multitrillion-dollar trade deficits in the 2000s, Germany had large export surpluses. In the midst of Western Europe’s economic turmoil, Germany is a bastion of strength. Its economy grew faster than the U.S. economy from 1995 to 2010, with the gains more widely shared. Since 1985, the hourly
pay of middle-class workers in Germany has risen five times as fast as in the United States, with the result that the German middle class is now paid better on average than Americans.

German leaders worked hard to keep their high-wage, high-skilled jobs at home. While U.S. multinational corporations aggressively
moved production offshore, Germany, too, lost some of its production workforce, but it retained a larger share of its manufacturing base at home than America did.
Today, 21 percent of Germans work in production; in the United States, it’s 9 percent.

The difference is not in technology but in our government policies and our corporate strategies. Germany has maintained strong trade unions and a strong social contract between business and labor, even reducing unemployment during the Great Recession, while America’s jobless rate shot up.

America chose a different path, driven by the pro-business power shift in politics and a new corporate mind-set, both of which lie at the root of the economic rift in America today. The New Economy laissez-faire philosophy of the past three decades promised that deregulation, lower taxes, and free trade would lift all boats. It argued that sharply reduced taxes for the rich would generate the capital for America’s economic growth. Its disciples asserted that the free market would spread the wealth.

But that is not what has happened. The
middle class was left behind—the 150 million people whose family incomes range from nearly $30,000 to $100,000 a year—as well as 90 million more low-income Americans living in poverty or just above. Even the 60 million upper-middle-class Americans and the nation’s wealthiest 5 percent have been falling steadily further behind America’s financial elite, the super-rich 1 percent.

The New Economy mind-set marked a sharp break with the corporate philosophy of the postwar era. Then, the mantra of business leaders was to share the wealth—to distribute to their employees a sizable share of the profits from growth and from gains in productivity. Since the 1970s, business leaders have largely abandoned that share-the-wealth ethic. With some exceptions, CEOs have practiced “wedge economics”—splitting apart the pay of rank-and-file employees
from company revenues and profits. In fact, according to the Census Bureau, the pay of a typical male worker was lower in 2010 than in 1978, adjusted for inflation. Three decades of
getting nowhere or slipping backward.

Such a dichotomy has developed in America’s New Economy that last April, while more than twenty-five million Americans were unemployed, were working part-time against their will, or had dropped out of the labor force and the economy was still struggling to recover,
The Wall Street Journal
ran a front-page story trumpeting that major U.S. companies “have emerged from the deepest recession since World War II
more productive, more profitable, flush with cash and less burdened by debt” than in 2007, before the U.S. economy collapsed. Many of the 1.1 million jobs added by American multinationals since 2007 and much of the $1.2 trillion cash added to their corporate treasuries came from overseas. At home, the
Journal
noted, “the performance hasn’t translated into significant gains in U.S. employment.”

The financial cleavage created by wedge economics has provoked popular discontent. Today,
two-thirds of Americans—far more than just a couple of years earlier—say they see “strong” conflicts between rich and poor, and they see economics as more divisive than race, age, or ethnic grouping.

The New Economy is not smart. It hurts our capacity to grow, as we have seen from America’s painfully slow recovery from the financial collapse of 2008. The job losses and stagnant pay of the New Economy have broken what economists call “the
virtuous circle of growth”—long the engine of America’s economic growth and middle-class prosperity.

In the heyday of the middle class, for thirty years after World War II, America’s great companies paid high wages and good benefits.
Tens of millions of families had steady income, and they spent it, generating high consumer demand. Robust consumer demand is the main driving force of the U.S. economy. It propels businesses to invest in new technology, new plants and equipment, and more employees. Corporate expansion contributes to full employment, fueling “the virtuous circle of growth” to another round of expansion and higher living standards.